With Congress seemingly unable to reach a compromise on a wide-reaching stimulus bill, which would have the power to deposit much-needed coronavirus relief in millions of Americans’ pockets, President Donald Trump enacted a plan via executive to cut back on the payroll tax. That plan, which in theory should allow companies to defer their workers’ payroll taxes until January temporarily, kicked off on Tuesday — but many Americans will likely never see a boost in their paycheck.
That’s because few companies are opting to participate in the tax holiday over concerns that they could ultimately be on the hook for said taxes when they’re due next year. In the guidance issued by the IRS last week, the Trump administration put the brunt of the responsibility of the tax deferral on employers. That means that if an employee left their position at the company before the new year when the tax deferrals are set to end, the employer would ultimately have to pay back the 6.2% of past-due taxes that never came out of the employee’s paychecks.
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Rachelle Bernstein, vice president of the National Retail Federation, told FOX Business that “practically all of the retailers we’ve heard from on this issue have decided that they’re not going to implement the deferral, or their company hasn’t made a decision yet.”
Under the executive action that Trump signed on Aug. 8, payroll taxes, which are used to fund Social Security, can be deferred for workers earning less than $104,000 annually or $4,000 biweekly, beginning Sept. 1 through the end of the year, at which point employers are obligated to start collecting back what is owed. That means employees who had their payroll taxes deferred would have to start paying that 6.2% back in January — on top of the standard 6.2% that is taken out of their paycheck every week.
The measure could be a temporary salve for workers struggling during the coronavirus crisis, though could also become a problem come the new year when 12.4% of their paychecks is automatically going to payroll tax. Trump has indicated that he wants to “terminate” the tax so that workers are not required to pay back the money at a later point, though he also implied that the decision would not be made until after the election. “If I’m victorious on Nov. 3, I plan to forgive these taxes and make permanent cuts to the payroll tax,” he said. “I’m going to make them all permanent.”
However, that would require an act of Congress, which remains interminably divided on the party line (with Democrats controlling the House and Republicans controlling the Senate) and cannot even come to a compromise on establishing a stimulus package to deliver financial aid to Americans hard hit by the coronavirus shutdowns.
